3 Growth Stocks that are posing as Value Stocks

Friday, October 3, 2008
By Faisal Laljee

This market is really fickle and the bailout package seems to have done nothing to appease the market. Today, while the market was waiting for the House to approve the new bailout plan, the Dowt rallied 250 points. Once it was approved, it turned negative within minutes. We are definitely not out of the woods, but certain stocks are just begging to be bought.

Now before you go out and buy these stocks, know that as I mentioned earlier in the week, no one knows which way the market is headed. So if you don’t have a stomach for risk, its better to steer clear of the market until the fog lifts.

Priceline.com (PCLN) – This company has been reporting fantastic quarters and has been consistently beating expectations. It has grown its overseas businesses in Asia and Europe and has become very efficient at what they do. The stock trades for less than 9 times next year’s earnings with a PEG of 0.4. At the same time, the company is growing sales and earnings at 40-50%. Without a doubt, this is one of the best bargains out there. The stock is trading almost 60% below its all-time high of $140 reached less than 5 months ago. Yes gas prices are high. Yes the economy is bad. Yes liquidity and credit are scarce. But Priceline is the Costco of travel. People need to take vacations from their daily struggles and while they will spend much less, they will not entirely stop travelling. Even those with deeper pockets, who previously booked directly through their travel planner or through catalogs will now look for bargains like those on Priceline.com. Moreover, Priceline.com stands to take market share from its competitors like Orbitz.

Google (GOOG) – Google has gone from being the growth story of the decade to the fledgling large-cap that can’t seem to get out of its own way overnight. At current levels around $400, it sits over 40% below its all time high of just over $700 reached last December. The company has innovative management, great people, and superior technology than any internet/tech/media companies out there. 18% of all college graduates surveyed want to work at Google. The stock trades at a PEG ratio of less than 0.7, has $12 billion ($40 per share) in cash and no debt. That means it trades at 15 times next years earnings. Talk about value. Some might argue that advertising revenues will hurt Google and they are right. But Google is not the kind of stock you buy just for their advertising revenue. It is not a pure-play media giant. Chrome, their new browser, serves a very different market. Android, their mobile operating system is also set to capture a different aspect of the market. Google is a company that is continuously diversifying its business. Without much publicity, it has a plethora of web based business and productivity applications.

Apple (AAPL) – Apple is at levels it was before it launched the original iPhone. iPhone is a game changing device that has caused a ripple effect among all cell phone manufacturers. Not a week goes by when we don’t hear about a potential iPhone killer, what with Samsung, Nokia, LG and HTC, all trying to come up with devices similar to the iPhone. The stock trades at 12 times next year’s earnings if you take out the $23 per share in cash. Mac sales are soaring, and yes while a weaker economy means less spending, Apple will still take market share from the PC makers like Dell and HP. More and more students around campus now carry Macs, more and more people are spotted with Macs in cafe’s and bookstores. I can’t imagine that Apple is not a double from these levels in 2 years.

There are more such gems like China Mobile (CHL), US Steel (X), Vale (RIO), and Research in Motion (RIMM), but I will present some more such stocks in the near future.

– Faisal Laljee
Full Disclosure: I own AAPL, GOOG, PCLN, X and RIMM but my position can change anytime without notice. 

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